Executives 'struggle with setting strategies’

Dubai, April 7, 2011

A majority of executives struggle with setting a clear and differentiating strategy, ensuring that day-to-day decisions are in line with their strategy and allocating resources in a way that supports the strategy, said a report.

The survey from Booz & Company also shows that companies with more “coherence” – where executives claim that strategy, capabilities and product offerings are in synch – perform better.

The survey included more than 1,800 executives, out of which 120 were from companies headquartered in the Middle East.

“The survey results tell us that deciding on priorities is a huge issue for companies – and that actually linking priorities to decisions is a hurdle that few companies get past. We see this ‘incoherent’ operating environment across industries and geographies, among all types of companies,” said Paul Leinwand, co-author of the just-released book The Essential Advantage: How to Win with a Capabilities-Driven Strategy.

“It’s draining – and forcing companies to pay a significant penalty. We call it the incoherence penalty,” he added.

“Respondents from Middle-Eastern companies share those challenges,” said Ahmed Youssef, partner with Booz & Company. “For 63 per cent of them ensuring that day-to-day decisions are in line with their strategy is a significant challenge. That’s a higher percentage than for any other region in the world.”

A great majority of executives (64 per cent of the survey respondents) say that their biggest frustration factor is “having too many conflicting priorities”, while half of the executives consider setting a clear and differentiating strategy a significant challenge.

Most executives (52 per cent) do not feel their company’s strategy will lead to success. Only 21 per cent say their company has a right to win in all the markets in which it competes.

Eighty-one per cent say growth initiatives lead to waste, at least some of the time, while 82 per cent say functional departments in their companies get competing demands from different business units.

“The root of the problem is that too many companies grab too hastily for what seems like the next answer to growth,” said Cesare Mainardi, Booz & Company managing director and co-author.

“They don’t have a solid framework to decide which set of opportunities will lead to sustainable success. They end up stretched thin, trying to play in too many disparate markets.”

“The winners, on the other hand, stick to a well-articulated path to success: They define the fundamental identity of their company by developing a clear idea of what it does best and how it creates value – and focus investment on the capabilities that matter. Growth then follows as a consequence of the strategy rather than as a set of separate and often unsuccessful initiatives,” Mainardi added.

A significant number of executives (43 per cent) say their company’s strategy does not fundamentally differentiate the company in the market. Nearly half of executives (49 per cent) say their company has no list of strategic priorities.

While most executives say their company has a clear way to create value, most (53 per cent) say that this “way” is not understood by employees and customers. Similarly, most executives say their company has a clearly stated set of capabilities, but only a third of executives (33 per cent) say those capabilities support the company’s strategy and the way it creates value in the market.

Very few executives (21 per cent) say all of the company’s businesses leverage the same set of capabilities. Most executives (54 per cent) say their company’ capabilities do not reinforce each other.

“There’s clearly a problem with how a lot of companies set strategies. We passionately believe companies must choose what they will be excellent at – what they will do rather than just what they sell. The survey results, however, suggest that most companies take a somewhat ‘incoherent’ approach,” said Leinwand.

“It’s not surprising that the fast economic growth in the Middle East accentuates the problem. The percentage of respondents (24 per cent) indicating that their philosophy about strategy is to choose an attractive market and then figure out how to be successful in it – independent on their company’s capabilities – is nowhere as high as for companies headquartered in the Middle-East (35 per cent),” added Youssef.

Most executives (57 per cent) say their company creates strategy by either “pursuing a broad portfolio of strategic options and spreading the risks” or by “choosing an attractive market and figuring out how to be successful in it.”

Only 43 per cent say their company’s philosophy about strategy starts from the inside – looking at what they’re great at and finding markets that capitalize on those capabilities.

“It’s not surprising that, based on an algorithm applied to the participants’ answers, only 13 per cent of the respondents come from a company that we would deem ‘coherent,’” said Mainardi. “This percentage is even lower for respondents from companies headquartered in the Middle East: a mere 6 per cent,” Youssef added. – TradeArabia News Service